Updating Your Rental Agreement

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Updating Your Rental Agreement

By Scott Zucker

Reprinted with permission from the Mini Storage Law Commentary, published by the law firm Weissmann & Zucker, PC.

By far, the self-storage rental agreement is one of the most important tools in operating a self-storage facility. Therefore, it is important for facility owners and operators to take the time to stop and review their agreement to confirm that the document they're using is up to date and effective for its intended purpose.

Consider some of these questions when looking at your rental agreement: When was it drafted? Does it follow your state's self-storage law? Has your state law been amended since the agreement was written? Does your agreement consider recent court decisions that interpret self-storage agreements? Depending on your answer to some of these questions, it may be time for you to consider updating your agreement.

As a general guide, in addition to provisions regarding term, rent, late fees and other charges, your rental agreement should explain the owner's role as landlord, the tenant's risk of loss and the need for insurance for the stored property. The agreement should generally outline the rights of the facility owner, the obligations of the tenant and what happens when the tenant doesn't pay the rent.

Nonbailment

One of the most crucial ingredients to a strong self-storage lease is the discussion that the relationship between the party leasing the space for storage and the party storing his property is that of a landlord/tenant. The self-storage owner is not a bailee of the tenant's property and there is no warehouseman relationship between the parties. That limitation must be included in a self-storage rental agreement. A statement that the self-storage owner is not a bailee, and does not take care, custody or control of a tenant's goods, must be explicitly addressed in the agreement. Keep in mind that judges who are deciding cases concerning tenant's claims will look primarily to the rental agreement to determine the facility owner's obligations to the tenant. A bailee is held to a much higher standard of care than a landlord. Therefore, the agreement needs to be clear that the facility owner is not a bailee of the tenant's property.

Limitation of Liability

The effort to potentially limit a self-storage owner's liability in case of tenant claims should be included in the self-storage agreement under three separate provisions. First, there should be a limitation of value provision that explains that the value of the property to be stored cannot exceed a certain amount (commonly $5,000) unless previously approved in writing by the facility owner. Under this type of provision the facility would allow a tenant to store property with a value greater than $5,000 if the tenant could provide proof of insurance for 100 percent of the estimated value of the property.

Next, there should be a statement in the agreement that the tenant agrees not to store property having special or sentimental value and the tenant specifically waives its right to make claims for emotional attachment to its stored property. This provision lessens the likelihood of claims for emotional distress arising from the loss or damage to the tenant's property.

Finally, there should be a jury trial-waiver provision in the agreement that would attempt to restrict the tenant's rights to bring his claim before a jury. This provision is important because tenant cases heard before a jury have a greater likelihood of larger verdicts than a similar case heard only before a judge. Unfortunately, there is a caveat to the limitation of liability provisions addressed above. Certain states will allow these provisions to be upheld. Other states will not.

Release of Liability

Another significant section of the rental agreement should specifically address the tenant's release of liability against the landlord. The language in the agreement would normally include statements that the property is stored at the "sole risk" of the tenant and that the landlord is not liable for the "loss of or damage to" the tenant's personal property due to burglary, mysterious disappearance, fire, water damage, rodents and acts of God.

It is also important to include in the rental agreement that the landlord will not be held liable for such property loss or damage arising from the "active or passive acts or omissions or negligence of the owner, owner's agents or employees." Where this language is found, certain court decisions have allowed landlords to be released from liability where their own negligence has caused the loss or damage to occur. This release section of the agreement can also address liability for any personal injuries that may occur to the tenant while at the facility. However, many states will not uphold a personal injury waiver such as this, although some mention of it still should be included in your agreement.

Insurance

One of the most important clauses in a self-storage rental agreement involves the issue of tenant insurance. This provision should state that the tenant is obligated to obtain his own insurance to protect the value of his stored property. The provision would provide that the requirement to obtain insurance is a material condition of the agreement and that the failure to obtain such insurance would be a breach of the agreement. Certainly, the agreement should identify that the tenant has the right to be self insured, but that it assumes full risk for the loss or damage to its stored property. Another vital provision that should be included under the insurance section of the agreement is a waiver of subrogation. This provision prevents a tenant's insurance company from pursuing claims against the self storage facility after it has paid its insured. Without such a provision, if a tenant collects from its insurance company on a loss or damage claim, the insurance company would have the right to then seek recovery back against the facility for their payment of that claim.

Indemnification Provision

Related to insurance, a good self-storage agreement should also contain an indemnification provision whereby the tenant agrees to indemnify and hold the self-storage facility harmless for property loss or damage or personal injury he causes from his use of the facility. In other words, where a third party is injured as a result of the tenant's acts, and that third party seeks to recover against the facility, the facility can look to the tenant to recover for any damages it is required to pay that injured third party.

Lien Sale Rights and Procedures

Almost every state self-storage law requires that certain language be incorporated in the rental agreement to notify the tenant of the landlord's right to lien its tenant's goods and sell those goods once the tenant is in default. Certain state laws even require that this notice be in bold print or that the print be in a larger type size. Again, it is crucial that whatever is required by the statute be followed in the agreement. Courts will likely not uphold a facility's lien enforcement rights if the facility has not properly complied with the requirements of the statute.

Other Important Provisions

Self-storage rental agreements should also include language addressing restrictions as to what can be stored in the unit, the termination rights of both the landlord and the tenant, and what defines a tenant's abandonment of its property. Other provisions should address warranties, partial payments, the landlord's right to obtain access and his right to change the terms of the agreement upon proper notice to the tenant.

No rental agreement is perfect, nor does it have to be. What a good agreement must do, however, is contain certain language that identifies it as a self-storage rental agreement as compared to any other type of lease. Again, there is enough confusion regarding the rights and liabilities of self storage owners as it is. There need not be further confusion based upon a poorly written or incomplete rental agreement. If you haven't done so in a while, take some time to read your agreement and test it to see whether it needs updating.

Scott I. Zucker is a partner in the law firm of Weissmann & Zucker, P.C. Mr. Zucker is an expert in the field of self-storage law and represents self-storage owners and managers throughout the country in matters that include contracting for construction, preparing lease agreements, defending tenant claims and handling employment disputes. He can be reached at (404) 364-4626; zucklaw@aol.com.

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